The Ultimate Guide to Capacity Planning

By Joe Weller | November 30, 2021

Make intelligent decisions to accurately meet the demand for your company’s goods and services with a comprehensive overview of capacity planning. 

Included on this page, you’ll find a capacity planning worksheet sample , a checklist with the most important capacity planning considerations, and tips from capacity planning experts.

What Is Capacity Planning?

Capacity planning is the ability to make informed decisions on whether you have enough resources available for a project. The goal of capacity planning is to optimize service delivery and meet service level agreements (SLAs).

Why Is Capacity Planning Important?

Capacity planning is important to overall client satisfaction. The process allows a business to match current capacity with future demands, as analyzing capacity data ensures that teams are productive and projects don’t fall behind schedule or run over budget. 

Richard Gimarc

Richard Gimarc, an independent consultant and author who specializes in capacity management, shares the importance of capacity planning: “If a business is providing a service to its customers, capacity planning ensures the customers are receiving a responsive service and there is a full understanding of the cost of the digital infrastructure required to provide that level of service.”

Benefits of Capacity Planning

Capacity planning provides transparency into what the team is working on, skill sets, and availability. The number one benefit of capacity planning is that it enables teams to deliver on-time, on-budget projects.

Below are the top four benefits of capacity planning:

  • Cost Savings: Capacity planning helps identify the most cost-effective way to utilize resources.
  • Resource Availability: Capacity planning helps organizations identify the most cost-effective way of meeting both human and IT resource requirements.
  • Skills Inventory Check: Ensure the team possesses the skills needed to deliver on your strategic initiatives.
  • Talent Acquisition: Data-informed staffing decisions can swiftly address critical talent gaps.

Gimarc says, “In the perfect world, capacity planners work with their business partners to predict the impact of business demand on the availability and scalability of their digital infrastructure, and then determine the most cost-effective way to optimize service delivery and meet SLAs. Capacity planning is the single source of truth for the business process in question.”

He offers the following example: “How well is the digital infrastructure supporting SLAs and application availability, and what does the future look like based on business demand? Are we near a digital infrastructure breaking point, are we introducing new business services, or are we continuing business as usual?”

What Are Four Key Considerations for Capacity Planning?

Capacity planning requires collaboration among the business, application, IT, and facilities teams. Communicating across each of these silos tends to be a significant challenge. 

In their research paper, “The Language of Capacity Planning: Business, Infrastructure, and Facilities,” Gimarc and Amy Spellman, Former Global Practice Principal, 451 Research Advisory Services, describe the four key silos to consider as you promote capacity planning and discuss the importance of the capacity planner role in merging communication.

“Today’s capacity planner must work with all areas of an enterprise’s digital infrastructure, which includes the business owners, the application teams, the infrastructure group, and facilities. In a sense, this is good news. As the central point of contact for planning and coordination, the capacity planner is well-positioned to ensure that there is sufficient capacity across the breadth and depth of the digital infrastructure to satisfy business demand cost-effectively.”

How Do You Manage Capacity Planning?

Capacity planning is not a siloed, one-time activity; it is collective and continuous. Business goals and insight into future growth are crucial to managing capacity. To succeed, you need to continually measure, analyze data, and anticipate the future plan.

“The capacity planning group works for the business. Consider starting out with a line of business that is directly associated with revenue, such as sales,” suggests Gimarc. “The best way to manage capacity planning is to focus on a business owner who is willing to work with you. Once you get the business owner on board, look at metrics and infrastructure that is specific to that line of business.”

What Are the Steps Involved in Capacity Planning?

Capacity planning minimizes costly mistakes. Teams can begin by measuring current capacity, then they can forecast demand, analyze gaps, and plan for the future.

  1. Measure Current Resource Capacity: Calculate the capacity of your current resources. To determine the human resource capacity, multiply the number of hours in a work period by the number of resources, and then subtract the amount of non-work time.
  2. Forecast Anticipated Demand: Make an educated estimate on the resource needs of each project. To forecast demand, some organizations rely on past demand, but today’s predictive analytics solutions account for unknown variables that can significantly impact demand. 
  3. Analyze Capacity Requirements: Use the initial measurements to assess whether you have the resources you need to complete the forecasted work. You can do this in a spreadsheet or another tool that will calculate the difference between your current capacity and expected demand. 
  4. Align Capacity with Demand: If your team cannot meet the anticipated demand, use the capacity planning spreadsheet or tool to determine whether more team members, overtime, or shift work will help get the projects done.

Use these capacity planning templates to measure, forecast, and analyze capacity.

Capacity Planning Checklist

Below you will find a capacity planning checklist to guide you through the six main capacity planning considerations. Use this any time you need to plan for future capacity. 

  1. Check Current SLA Levels: It is crucial to understand the current capacity and SLAs before looking ahead.
  2. Analyze Existing Capacity: Review how well your systems meet your current needs.
  3. Understand Future Needs: What skills are necessary for future projects, and do you have the essential resources in place?
  4. Identify Consolidation Opportunities: Capacity planning is an ideal time to consolidate workloads.
  5. Make Recommendations: Use current capacity data to inform decisions on future initiatives. 
  6. Execute on the Plan: Create an actionable plan with an eye on the future to keep your organization on track. 
Capacity Planning Checklist

Download Capacity Planning Checklist — Adobe PDF

Capacity Planning Example

Capacity planning is a valuable practice, regardless of industry or company size, as it helps with planning human resources, production tools, and IT resources. Below is a worksheet for new practitioners. 

Agile Capacity Planning Worksheet

Use this example Agile capacity planning worksheet from Nicole Eiche, a senior Agile consultant and solution engineer at Method, to balance team capacity to iteration load and arrive at team velocity. Eiche suggests that the team “conduct iteration planning before starting each iteration where your team determines goals based on the amount of backlog they can commit to.”

What Are the Types of Capacity Planning?

A business can use capacity planning to ensure critical resources are available to meet project demands. Here are a few common types of capacity planning:

  • Product: A product capacity plan involves ensuring enough products are available to meet deliverables. 
  • Workforce/Team: An effective workforce capacity plan can ensure that you’ve scheduled an appropriate number of team members and work hours for the project.
  • Tool: A tool capacity plan ensures that you have the necessary tools for a project.
  • Requirements: Capacity requirements planning (CRP) helps you to establish, measure, and adjust limits or levels of capacity.
  • Agile: Agile capacity planning helps teams determine the number of available, productive hours for an upcoming sprint. You will find Agile capacity planning templates in this template roundup
  • IT: Capacity planning for IT involves balancing costs and capacity, followed by supply and demand.
  • ITIL: Capacity planning for ITIL services aims to deliver the agreed service level targets under budget and on deadline.
  • Rough-Cut Capacity Planning: Rough-cut capacity planning (RCCP) verifies that you have enough capacity to meet the master production schedule requirements.

What Is Capacity Planning in Project Management?

Project management capacity refers to the maximum amount resources can produce or accomplish in a given timeframe. Capacity planning in project management aims to adjust resources to meet demand, with the goal of improving capacity while minimizing cost.

What Is the Difference Between Capacity Planning and Resource Planning?

Capacity and resource planning are related and complementary. Capacity planning balances the future need for resources against the capacity of resources. Resource planning process functions to allocate people and teams to meet the demands of your projects and programs.

Visit this resource planning guide to learn more.

Capacity Planning Best Practices

Companies can benefit from capacity planning, particularly when available resources continually don’t meet the demands of project work. To adequately plan, you must first gain insight into current capacity and future demand. Below, industry experts share their advice from practical experiences.

Cindy VanEpps

Cindy VanEpps, a principle consultant at Project and Team, suggests that capacity planning take place as a team: “Capacity planning is more than just the addition of estimates by each team member. Combining the estimates with building high-performing teams that focus on the same product or outcome helps the team collaborate and identify disruptors.” 

VanEpps offers a quote from Donald G. Reinertsen’s book, The Principles of Product Development Flow: Second Generation Lean Product Development: “Operating a product development process near full utilization is an economic disaster.” 

Of this statement, VanEpps says, “Reinertsen is correct; planning at 100 percent capacity is an economic disaster. The team must understand the work enough to account for variability imposed by learning. By working in smaller, more manageable batches, the team can allow for potential variability.”

Additional tips for capacity planning include the following:

  • Business Alignment: Align work with business goals to maintain your teams' focus on what matters most.
  • Team Forecasting: In order for role-based planning to add up to meaningful teamwork, forecast total demand at the team level. 
  • Understand Current Capacity: Analyze current capacity to plan and know if you can meet current and future requirements more accurately.
  • Evaluate Potential Scenarios: Scenario planning can home in on the most valuable combination of investments and types of work that align with your organization's strategic goals.
  • Consider Distractions: Remain aware of distractions that sneak into the mix. Consistent monitoring can help your teams stay focused on critical work.
  • Anticipate Change: Expect change and anticipate adjustments down the line, often as a result of inaccurate estimates. You may need to reassign resources to stabilize workloads and stay away from bottlenecks regularly.
  • Continuous Planning Flow: Continuous planning is necessary because change is inevitable. Capacity planning should also be a proactive process.
  • Proactive Planning: Remain proactive in reducing multitasking, minimizing distractions, and streamlining processes to increase productivity.

Mistakes to Avoid When Building a Capacity Plan

Lack of historical information and business insights leave capacity planners without the necessary data to make intelligent decisions, and planning will fail without data. Below, industry experts share their advice on mistakes to avoid when creating a capacity plan.

Joao Natalino De Oliveira

Joao Natalino De Oliveira, Regional Chair and International Officer at Computer Measurement Group, says that the first mistake he sees with startups is the failure to build a capacity plan. “Eighty-five percent of startups fail because they don’t analyze and plan for demand,” he says. “Enterprise companies have dedicated capacity planners. In the early days, these companies preferred to work with large server farms and disk subsystems to sustain during peaks. After several outages, they turned to capacity planning.” 

He gives a specific example: “I visited a digital bank with a large number of cloud resources, but without a dedicated capacity planner. They started seeing elevated costs. They saw drastic improvement with a capacity planner that focused on better appropriation.”

Working in silos is another avoidable mistake. As Gimarc says, “Capacity planning should be a point of intersection for the business, application, IT, and facilities teams. Ignoring technology advances is another mistake. Capacity planners should utilize observability information rather than depending on ad hoc documentation and outdated flow diagrams. Finally, a capacity planner must speak the proper language, translating from the business to applications, infrastructure, and facilities.”

Other mistakes to avoid include the following:

  • Not Having Historical Data: Always ask for historical information, not just current requirements.
  • Not Understanding Business Objectives: A solid understanding of your organization's capacity is crucial.
  • Not Understanding the Impact of Change: Even small changes matter, so plan carefully to minimize employee stress.
  • Not Correctly Defining Timelines and Scope: A solid grasp on both timelines and scope will negate the risk of running over time and budget.

Capacity Planning Strategies

There are four main strategies for capacity planning. You will choose a lag, lead, match, or dynamic approach to helping optimize capacity. 

Here’s how each strategy works:

  • Lag: Adding capacity only when the actual demand is observable.
  • Lead: Adding capacity in anticipation of high demand for the product.
  • Match: Adding small amounts of capacity to the anticipated demand signals and current market potential of the product.
  • Dynamic: A forecast-driven approach to capacity planning that involves adjusting production in advance.

Capacity Planning in 2021 and Beyond

Having the right resources on hand to forecast and manage customer demand is not a new concept. Capacity planning is more crucial than ever. Fortunately, AI tools are available to accurately bill, optimally staff, and effectively plan for future projects.

Modern tools geared toward capacity planning promise greater visibility into projects, resources, and teams, along with the effective prioritization and management of workloads. Gimarc would not be surprised if a new term arises for capacity planning: “The terms capacity planning and capacity management were introduced over 50 years ago, and they do not always garner positive opinions.” 

As for what the future holds, De Oliveira says, “in the near future, capacity planning means saving money, surviving, and winning in the IT jungle.” He expects to see more AI, deep learning, and machine learning to automate capacity planning: “The instrumentation of business applications that targets capacity and capacity planning will continue to expand from the mainframe arena to other platforms, even edge computing.“

What Tools Do You Use in Capacity Planning?

Experts contend that there is no gold standard tool for capacity planning. Some consider capacity planning to be old and outdated. Still, here are three commonly used tools for capacity planning: Kanban boards, critical path, and Gantt charts.

  • Kanban Board: A Kanban board visually displays progress and reduces waste by keeping track of workflow. Kanban boards also help with capacity planning by showing the number of tasks a team has taken on. 
  • Critical Path: The critical path method can determine how much computing capacity is necessary to support a service or group of services. The tool aids in analyzing critical application performance and capacity requirements.
  • Gantt Chart: A Gantt chart is a bar graph for project scheduling and planning to outline task information. Connect the chart to Google spreadsheets. The tool will pull in data and display it for information sharing, collaboration, or discussion with others.

Get the Most Out of Capacity Planning with Smartsheet for Project Management

From simple task management and project planning to complex resource and portfolio management, Smartsheet helps you improve collaboration and increase work velocity -- empowering you to get more done. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time. Try Smartsheet for free, today.


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